Item 7. Management’s Discussion and Analysis
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Consolidated Financial Statements and related Notes and other financial information appearing elsewhere in this annual report on Form 10-K, and with Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of our annual report on Form 10-K for our fiscal year ended December 31, 2020, filed with the SEC on February 18, 2021, which provides a discussion of our financial condition and results of operations for fiscal year 2020 compared to fiscal year 2019. The following discussion includes forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management.
OVERVIEW
General
We are a leading provider of high-performance building solutions that meet the demands of builders, remodelers, and homeowners worldwide. We have leveraged our expertise serving the new home construction, repair and remodeling, and outdoor structures markets to become an industry leader known for innovation, quality, and reliability. Our manufacturing facilities are located in the U.S., Canada, Chile, and Brazil.
To serve these markets, we operate in four segments: Siding, OSB, EWP, and South America.
Executive Summary
Total net sales for 2021 increased year-over-year by $1,765 million (or 63%) to $4,553 million, including Siding Solutions growth of $243 million (or 27%), $1,113 million from higher OSB prices, an EWP revenue increase of $249 million (or 64%) due to price increases in response to significantly higher raw material input costs, and an increase of $96 million (or 57%) in South America due to higher prices.
Net income attributed to LP increased year-over-year by $878 million (or 176%) to $1,377 million ($14.09 per diluted share) primarily due to the record OSB prices. Adjusted EBITDA (defined below) increased by $1,191 million (or 153%) over the prior year to $1,972 million. Adjusted EBITDA is a non-GAAP financial measure. Please see “—Non-GAAP Financial Measures” below for more information about our use of non-GAAP financial measures in this annual report on Form 10-K and the reconciliation of Adjusted EBITDA to Net income.
Demand for Building Products
Demand for our products correlates positively with new home construction and repair and remodeling activity in North America, which historically have been characterized by significant cyclicality. The U.S. Census Bureau reported on January 19, 2022, that 2021 actual single-housing starts were 13% higher than those in 2020. Actual multi-family housing starts in 2021 were about 21% higher than those in 2020. Repair and remodeling activity is difficult to reasonably measure, but many indications, including the substantial increase in LP’s retail sales, suggest that it grew significantly in 2021.
Although housing market demand has recently been very strong, future economic conditions in the United States and the demand for homes remain uncertain due to continuing COVID-19-related disruptions, government directives, actions and economic relief efforts related thereto, and the impact of these actions on the economy, employment levels, consumer confidence, and financial markets, among other things. Additionally, as a result of increased demand in the housing market and a strengthening economy in the United States, we have experienced increases in material prices, supply disruptions, and labor shortages, which will be a challenge for LP as we continue
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to work to meet the demands of builders, remodelers, and homeowners worldwide. The potential effect of these factors on our future operational and financial performance is uncertain. As a result, our past performance may not be indicative of future results.
The chart below, which is based on data published by U.S. Census Bureau, provides a graphical summary of new housing starts for single and multi-family in the U.S., showing actual and rolling five- and ten-year averages for housing starts.
Supply and Demand for Siding
Siding Solutions is a specialty building material and is subject to competition from various siding technologies, including vinyl, stucco, wood, fiber cement, brick, and others. We believe we are the largest manufacturer in the engineered wood siding market. The overall siding market is estimated to be an overall $12 billion industry. We have consistently grown our Siding Solutions above the underlying market growth rates. Siding Solutions is generally less sensitive to new housing market cyclicality since roughly 50% of its demand comes from other markets, including sheds and repair and remodel. Our growth in this market depends upon the continued displacement of vinyl, wood, fiber cement, stucco, bricks, and other alternatives, our product innovation and our technological expertise in wood and wood composites to address the needs of our customers.
Supply and Demand for OSB
OSB is a commodity product, and it is subject to competition from manufacturers worldwide. Product supply is influenced primarily by fluctuations in available manufacturing capacity and imports. The ratio of overall OSB demand to capacity generally drives price. We experienced increased demand for commodity OSB during 2021; however, we cannot predict whether the prices of our OSB products will remain at current levels or increase or decrease in the future.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our financial position and/or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove
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to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. Our significant accounting policies are disclosed in the Consolidated Financial Statements and Item 8 of this annual report on Form 10-K. The following discussion addresses our most critical accounting policies, which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates.
Long-lived Assets
Property, plant and equipment, and long-lived assets (including amortizable identifiable intangible assets) are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable, including but not limited to facility curtailments and asset abandonments. When such events occur, we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows exist. We compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of a long-lived asset or asset group. The cash flows are based on our best estimate of future cash flows derived from the most recent business projections. The significant assumptions used to determine estimated cash flows are the cash inflows and outflows directly resulting from the use of those assets in operations, including sales volume, product pricing, support costs, and other costs to operate. We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. Fair value is estimated primarily using discounted expected future cash flows on a market-participant basis. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis is depreciated (amortized) over the remaining estimated useful life of that asset.
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values. We have not made any material changes in our impairment loss assessment methodology in the periods presented. We do not believe a material change in the estimates or assumptions that we use to calculate long-lived asset impairments is likely. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.
Defined Benefit Pension Plans
We have a number of pension plans in the U.S. and Canada, covering many of our employees. Benefit accruals under our defined benefit pension plan in the U.S. were frozen as of January 1, 2010, and benefit accruals under our defined benefit pension plan in Canada were frozen as of January 1, 2020.
We are required to make assumptions that are used to calculate the related assets, liabilities, and expenses recorded in our Consolidated Financial Statements. Net actuarial gains and losses occur when actual experience differs from any of the assumptions used to value defined benefit pension plans or when assumptions change as they may each year. The primary factors contributing to actuarial gains and losses are changes in the discount rate and the differences between expected and actual returns on pension plan assets. This accounting method results in the potential for volatile and challenging to forecast gains and losses.
We record amounts relating to these defined benefit pension plans based on various actuarial assumptions, including discount rates, assumed rates of return, compensation increases, and life expectancy. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current economic conditions and trends. The assumptions utilized in recording our obligations under our plans are based on our experience and on advice from our independent actuaries. However, differences in actual experience or changes in the assumptions may materially affect our financial condition or results of operations.
In November 2021, the Company initiated the termination of our frozen U.S. and Canadian defined benefit pension plans (the Plan), which would result in the full settlement of the Company's net pension benefit obligations. The distribution of Plan assets pursuant to the termination will not be made until the Plan termination satisfies all regulatory requirements, which is expected to be completed by the end of 2022. Plan participants will receive their full accrued benefits from Plan assets by electing either lump-sum distributions or annuity contracts with a
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qualifying third-party annuity provider. The Plan termination is expected to result in pension settlement expense in 2022, which will be determined based on prevailing market conditions, the actual lump-sum distributions, and annuity purchase rates at the date of distribution. As a result, we are currently unable to reasonably estimate timing nor the final amount of such settlement charges. Upon settlement, we expect to recognize pre-tax pension settlement charges that will include a non-cash charge for the recognition of all pre-tax actuarial losses accumulated in Accumulated Other Comprehensive Loss ($101 million as of December 31, 2021) and (2) any cash contributions to settle the Plan’s obligations ($6 million net projected benefit obligation as of December 31, 2021). The actual amount of the settlement charges and any potential cash contribution will depend on various factors, including interest rates, Plan asset returns, and the lump-sum election rate.
As of December 31, 2021, we used a discount rate and long-term rate of return assumption of 2.6% and 5.3%, respectively, for our U.S. defined benefit pension plan. We used a discount rate and a long-term rate of return assumption of 2.6% and 2.3%, respectively, for our Canadian plans as of December 31, 2021.
• A 50-basis point change in our discount rate assumption would lead to an increase or decrease in our pension liability of approximately $13 million and would have a nominal impact on pension expenses.
• A 50-basis point change in the long-term rate of return on plan assets used in accounting for our pension plans would have a $1 million impact on pension expense.
It is not possible to forecast or predict whether there will be actuarial gains and losses in future periods, and if required, the magnitude of any such adjustment. These gains and losses are driven by differences in actual experience or changes in the assumptions that are beyond our control, such as changes in interest rates and the actual return on pension plan assets.
Customer Program Costs
Our businesses routinely incur customer program costs to obtain favorable product placement, promote sales of products, and maintain competitive pricing. Customer program costs and incentives, including rebates and promotion and volume allowances, are accounted for as a reduction in net sales at the time the program is initiated and/or the revenue is recognized. The costs include, but are not limited to, volume allowances and rebates, promotional allowances, and cooperative advertising programs. These costs are recorded at the later of the time of sale or the implementation of the program based on management’s best estimates.
Our estimates are based on historical and projected experience for each type of program or customer. Volume allowances are accrued based on our estimates of customer volume achievement and other factors incorporated into customer agreements, such as new products, merchandising support, and customer training.
Although we believe we can reasonably estimate customer volumes and support and the related customer payments at interim periods, it is possible that actual results could be different from previously estimated amounts. At the end of each year, a significant portion of the actual volume and support activity is known. Thus, we do not believe that a material change in the amounts recorded as customer program costs payable is likely. We had $45 million and $44 million accrued as customer rebates as of December 31, 2021, and 2020, respectively.
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NON-GAAP FINANCIAL MEASURES
In evaluating our business, we utilize non-GAAP financial measures that fall within the meaning of SEC Regulation G and Regulation S-K Item 10(e), which we believe provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP financial measures do not have standardized definitions and are not defined by U.S. GAAP. In this annual report on Form 10-K, we disclose income attributed to LP before interest expense, provision for income taxes, depreciation and amortization, and exclude stock-based compensation expense, loss on impairment attributed to LP, product-line discontinuance charges, other operating credits and charges, net, loss on early debt extinguishment, investment income, pension settlement charges, and other non-operating items as Adjusted EBITDA (Adjusted EBITDA), which is a non-GAAP financial measure. We have included Adjusted EBITDA in this report because we view it as an important supplemental measure of our performance and believe that it is frequently used by interested persons in the evaluation of companies that have different financing and capital structures and/or tax rates. We also disclose income attributed to LP, excluding loss on impairment attributed to LP, product-line discontinuance charges, interest expense outside of normal operations, other operating credits and charges, net, loss on early debt extinguishment, gain (loss) on acquisition, pension settlement charges, and adjusting for a normalized tax rate as Adjusted Income (Adjusted Income). We also disclose Adjusted Diluted EPS, calculated as Adjusted Income divided by diluted shares outstanding. We believe that Adjusted Diluted EPS and Adjusted Income are useful measures for evaluating our ability to generate earnings and that providing these measures should allow interested persons to more readily compare the earnings for past and future periods.
Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS are not substitutes for the U.S. GAAP measures of net income and net income per diluted share or for any other U.S. GAAP measures of operating performance. It should be noted that other companies may present similarly titled measures differently, and therefore, as presented by us, these measures may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS have material limitations as performance measures because they exclude items that are actually incurred or experienced in connection with the operation of our business.
We have elected to change our definition of Adjusted EBITDA and Adjusted Income to exclude pension settlement costs incurred during the year ended December 31, 2021. Pension settlement costs relate to any acceleration of the unrecognized actuarial loss related to our frozen U.S. and Canadian defined benefit pension plans. We consider pension settlement charges not to be reflective of our ongoing operations and believe that presenting Adjusted EBITDA and Adjusted Income excluding pension settlement charges provides increased transparency as to the operating costs of our current business performance. We did not revise prior years’ Adjusted EBITDA or Adjusted Income amounts because there were no significant costs similar in nature to these items.
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The following table presents significant items by operating segment and reconciles Net income to Adjusted EBITDA (dollar amounts in millions):
Year ended December 31, 2021 2020 2019
Net income $ 1,373 $ 497 $ (10)
Add (deduct):
Loss from noncontrolling interest 4 2 5
Net income attributed to LP 1,377 499 (5)
Provision for income taxes 426 125 (13)
Depreciation and amortization 119 111 122
Stock-based compensation expense 17 12 9
Loss on impairment attributed to LP 5 15 92
Other operating credits and charges, net (1) (4) 1
Product-line discontinuance charges — 8 —
Pension settlement charges 2 — —
Interest expense 14 19 19
Investment income (1) (4) (10)
Loss on early debt extinguishment 11 — —
Other non-operating items 4 — (6)
Adjusted EBITDA $ 1,972 $ 781 $ 209
Siding $ 289 $ 246 $ 169
OSB 1,531 519 10
EWP 95 23 26
South America 113 42 34
Other (20) (19) (3)
Corporate (36) (30) (27)
Adjusted EBITDA $ 1,972 $ 781 $ 209
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The following table provides the reconciliation of net income to Adjusted Income (dollar amounts in millions, except earnings per share):
Year ended December 31, 2021 2020 2019
Net income $ 1,373 $ 497 $ (10)
Add (deduct):
Loss from noncontrolling interest 4 2 5
Net income attributed to LP 1,377 499 (5)
Loss on impairment attributed to LP 5 15 92
Other operating credits and charges, net (1) (4) 1
Product-line discontinuance charges — 8 —
Loss on early debt extinguishment 11 — —
Pension settlement charges 2 — —
Gain on acquisition — — (14)
Reported tax provision 426 125 (13)
Normalized tax provision at 25% for 2021, 2020, and 2019 (455) (161) (16)
Adjusted Income $ 1,365 $ 482 $ 45
Adjusted weighted average shares - diluted 98 112 123
Diluted net income per share attributed to LP $ 14.09 $ 4.46 $ (0.04)
Adjusted Diluted EPS $ 13.97 $ 4.31 $ 0.37
OUR OPERATING RESULTS
Our results of operations for each of our segments are discussed below, as are results of operations for the “other” category, which comprises other products that are not individually significant. See Note 19 of the Notes to the Consolidated Financial Statements included in Item 8 of this annual report on Form 10-K for further information regarding our segments.
Siding
The Siding segment serves diverse end markets with a broad product offering of engineered wood siding, trim, and fascia, including LP ® SmartSide ® Trim & Siding, LP ® SmartSide ® ExpertFinish ® Trim & Siding, LP BuilderSeries ® Lap Siding, and LP ® Outdoor Building Solutions ® (collectively referred to as Siding Solutions).
Segment Net sales, Adjusted EBITDA, and Adjusted EBITDA margin for this segment were as follows:
Dollar amounts in millions Increase (decrease)
Year Ended December 31, 2021 2020 2021 - 2020
Net sales $ 1,170 $ 959 22 %
Adjusted EBITDA 289 246 17 %
Adjusted EBITDA margin 25 % 26 %
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Net sales in this segment by product line were as follows:
Dollar amounts in millions Increase (decrease)
Year Ended December 31, 2021 2020 2021 - 2020
Siding Solutions $ 1,158 $ 915 27 %
Other 12 44 (74) %
Total $ 1,170 $ 959
Percent changes in average net sales price and unit shipments were as follows:
2021 versus 2020
Average
Selling Price Unit
Shipments
Siding Solutions 9 % 16 %
Year Ended December 31, 2021, Compared to Year Ended December 31, 2020
For the full year, Siding net sales increased year-over-year by $211 million (or 22%), primarily due to a 27% increase in Siding Solutions revenue partially offset by the discontinuation of fiber (included in the Other product line) in 2020.
The increase in Adjusted EBITDA of $43 million reflects revenue growth offset by $66 million of raw material & freight cost inflation and $36 million of discretionary investments in support of future growth, including capacity expansions, equipment maintenance, and sales & marketing.
OSB
The OSB segment manufactures and distributes OSB structural panel products, including our value-added OSB portfolio known as LP Structural Solutions (which includes LP ® TechShield ® Radiant Barrier, LP WeatherLogic ® Air & Water Barrier, LP Legacy ® Premium Sub-Flooring, and LP ® FlameBlock ® Fire-Rated Sheathing) and LP ® TopNotch ® Sub-Flooring. OSB is manufactured using wood strands arranged in layers and bonded with resins. Significant cost inputs to produce OSB (including approximate breakdown percentages for 2021) were as follows: wood fiber (26%), resin and wax (20%), labor and burden (16%), utilities (six percent), and other manufacturing costs (32%).
Segment Net sales, Adjusted EBITDA, and Adjusted EBITDA margin for this segment were as follows:
Dollar amounts in millions Increase (decrease)
Year Ended December 31, 2021 2020 2021 - 2020
Net sales $ 2,387 $ 1,220 96 %
Adjusted EBITDA 1,531 519 195 %
Adjusted EBITDA margin 64 % 43 %
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Net sales in this segment by product line were as follows:
Dollar amounts in millions Increase (decrease)
Year Ended December 31, 2021 2020 2021 - 2020
OSB - Structural Solutions $ 1,152 $ 580 99 %
OSB - Commodity 1,221 632 93 %
Other 14 9 67 %
Total $ 2,387 $ 1,220
Percent changes in average net sales prices and unit shipments were as follows:
2021 versus 2020
Average
Selling Price Unit
Shipments
OSB - Structural Solutions 87 % 6 %
OSB - Commodity 90 % 2 %
Year Ended December 31, 2021, Compared to Year Ended December 31, 2020
OSB net sales increased year-over-year by $1,167 million (or 96%), largely due to $1,113 million in increased OSB prices. Structural Solutions sales volume, as a percentage of total OSB segment sales volume, was 45% in 2021 compared to 44% in 2020.
Adjusted EBITDA increased by $1,012 million, with price increases partially offset by $41 million of increased raw material costs and $38 million of maintenance and Peace Valley restart costs.
EWP
The EWP segment is comprised of LP ® SolidStart ® I-Joist (I-Joist), Laminated Veneer Lumber (LVL), and Laminated Strand Lumber (LSL) and other related products. This segment also includes the sales of I-Joist and LVL products produced by our joint venture and sales of plywood produced as an ancillary product of the LVL production process. During 2021, we ceased LSL production at our Houlton, Maine facility to begin the conversion of that facility to Siding Solutions production.
Segment Net sales, Adjusted EBITDA, and Adjusted EBITDA margin for this segment were as follows:
Dollar amounts in millions Increase (decrease)
Year Ended December 31, 2021 2020 2021 - 2020
Net Sales $ 638 $ 389 64 %
Adjusted EBITDA 95 23 307 %
Adjusted EBITDA margin 15 % 6 %
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Net sales in this segment by product line were as follows:
Dollar amounts in millions Increase (decrease)
Year Ended December 31, 2021 2020 2021 - 2020
I-Joist $ 309 $ 148 109 %
LVL 194 141 38 %
LSL 47 45 5 %
Other, including plywood and related products 88 55 59 %
Total $ 638 $ 389
Percent changes in average net sales prices and unit shipments were as follows:
2021 versus 2020
Average
Selling Price Unit
Shipments
I-Joist 83 % 14 %
LVL 38 % — %
LSL 41 % (26) %
Year Ended December 31, 2021, Compared to Year Ended December 31, 2020
EWP net sales increased year-over-year by $249 million (or 64%) from 2020, predominantly due to price increases in response to significantly higher raw material costs. Resulting increases in Adjusted EBITDA reflect the net effect of these price and cost increases.
South America
Our South America segment manufactures and distributes OSB structural panel and siding products in South America and certain export markets. This segment has manufacturing operations in two countries, Chile and Brazil, and operates sales offices in Chile, Brazil, Peru, Columbia, Argentina, and Paraguay.
Segment Net sales, Adjusted EBITDA, and Adjusted EBITDA margin for this segment were as follows:
Dollar amounts in millions Increase (decrease)
Year Ended December 31, 2021 2020 2021 - 2020
Net sales $ 265 $ 169 57 %
Adjusted EBITDA 113 42 170 %
Adjusted EBITDA margin 43 % 25 %
Net sales in this segment by product were as follows:
Dollar amounts in millions Increase (decrease)
Year Ended December 31, 2021 2020 2021 - 2020
OSB -Structural Solutions $ 227 $ 146 56 %
Siding
33 20 65 %
Other 5 3 96 %
Total $ 265 $ 169
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Percent changes in average net sales prices and unit shipments for 2021 compared to 2020 were as follows:
2021 versus 2020
Average
Selling Price Unit
Shipments
OSB 74 % (11) %
Siding 31 % 26 %
Year Ended December 31, 2021, Compared to Year Ended December 31, 2020
South America net sales increased year-over-year by $96 million (or 57%) compared to 2020, predominantly due to higher OSB and siding prices. Increased Adjusted EBITDA reflects the effect of these price increases, partially offset by higher costs of imported raw material.
Other
Our other products segment includes our off-site framing operation Entekra Holdings, LLC (Entekra), remaining timber and timberlands, and other minor products, services, and closed operations, which do not qualify as discontinued operations.
Net sales increased year-over-year by $43 million (or 83%) to $95 million primarily due to the Entekra growth. Adjusted EBITDA was $(20) million for 2021 as compared to $(19) million in 2020.
GENERAL CORPORATE AND OTHER EXPENSE, NET
General corporate and other expenses primarily comprise corporate overhead unrelated to business activities such as wages and benefits, professional fees, insurance, and other expenses for corporate functions, including certain executive officers, public company activities, tax, internal audits, and other corporate functions.
General corporate and other expense, net, was $46 million in 2021 as compared to $37 million in 2020. The increase in 2021 as compared to 2020 was primarily due to increased costs associated with stock compensation and performance incentives.
LOSS ON IMPAIRMENTS
During 2021, we recognized $6 million of pre-tax impairment charges primarily due to a non-cash impairment charge of $5 million related to goodwill associated with our off-site construction operation Entekra.
During 2020, we recognized $16 million of pre-tax impairment charges. Included within these impairment charges was a $9 million charge related to our fiber-producing assets. These impairment charges reflect the accelerated conversion from fiber production to pre-finishing. Additionally, we recognized $2 million in non-cash impairment charges related to our divestiture of the East River facility and $5 million related to goodwill associated with Entekra.
OTHER OPERATING CREDITS AND CHARGES, NET
For a discussion of other operating credits and charges, net, see Note 13 of the Notes to the Consolidated Financial Statements included in Item 8 of this annual report on Form 10-K.
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NON-OPERATING INCOME (EXPENSE)
For a discussion of non-operating income (expense), see Note 13 of the Notes to the Consolidated Financial Statements included in Item 8 of this annual report on Form 10-K.
INCOME TAXES
We recognized a tax provision of $426 million in 2021 compared to $125 million in 2020. For 2021, the primary differences between the U.S. statutory rate of 21% and the effective rate relate to state income tax. We paid $421 million and $70 million of income taxes net of refunds in 2021 and 2020, respectively.
LEGAL AND ENVIRONMENTAL MATTERS
For a discussion of legal and environmental matters involving us and the potential impact thereof on our financial position, results of operations, and cash flows, see Item 3 in this annual report on Form 10-K as well as Note 15 of the Notes to the Consolidated Financial Statements included in Item 8 of this annual report on Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal sources of liquidity are existing cash and investment balances, cash generated by our operations, and our ability to borrow under such credit facilities as we may have in effect from time to time. We assess our liquidity in terms of our ability to generate cash to fund our short- and long-term cash requirements. As such, we project our anticipated cash requirements as well as cash flows generated from operating activities to meet those needs. We anticipate long-term cash uses may also include strategic acquisitions. On a long-term basis, we will continue to rely on our credit facility for any long-term funding not provided by operating cash flows. We may also, from time to time, issue and sell equity, debt, or hybrid securities or engage in other capital market transactions.
Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, paying dividends, and making capital expenditures. We may also, from time to time, prepay or repurchase outstanding indebtedness or shares or acquire assets or businesses that are complementary to our operations. Any such repurchases may be commenced, suspended, discontinued, or resumed, and the method or methods of affecting any such repurchases may be changed at any time, or from time to time, without prior notice.
Operating Activities
During 2021, we generated $1,484 million of cash from operations as compared to $659 million in 2020. The improvement in cash provided by operations was primarily related to increases in OSB pricing and growth in Siding Solutions revenue. At December 31, 2021, and 2020, we had working capital of $181 million and $172 million, respectively.
Investing Activities
During 2021, net cash used for investing activities was $247 million as compared to $49 million in 2020. Capital expenditures for 2021 and 2020 were $254 million and $77 million, respectively. This increase in capital expenditures was primarily related to Siding conversion expenditures and growth and maintenance capital.
During 2020, we received $15 million in cash related to the divestiture of our East River facility assets and brand rights of CanExel ® . Additionally, we received $10 million related to the cash surrender value of the company-owned life insurance policy and $3 million related to the sale of our auction rate securities (ARS).
Capital expenditures in 2022 are expected to be in the range of $400 million to $430 million. We expect to fund our
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short-term and long-term capital expenditures through cash on hand, cash generated from operations, and available borrowing under our Amended Credit Facility, as necessary.
Financing Activities
During 2021, net cash used in financing activities was $1,388 million as compared to $272 million in 2020. We used $300 million to repurchase shares of LP common stock under the 2020 Share Repurchase Program, which was exhausted in May 2021. We used $1,000 million to repurchase shares of LP common stock under the First 2021 Share Repurchase Program, which was exhausted in December 2021. Additionally, we used $66 million to pay quarterly cash dividends. On November 2, 2021, LP’s Board of Directors authorized the Second 2021 Share Repurchase Program, under which the Company may repurchase shares of its common stock totaling up to $500 million.
In March 2021, we issued $350 million aggregate principal amount of the 2029 Senior Notes. In March 2021, LP used the proceeds from the issuance of the 2029 Senior Notes and cash on hand to redeem all of the 2024 Senior Notes at a redemption price of 102.438% of the principal amount thereof plus accrued and unpaid interest to, but not including, the redemption date. In connection with financing activities, we paid $2 million in debt issuance costs related to the third amendment to our Amended Credit Facility and $13 million in redemption premiums and debt issuance costs related to the 2024 Senior Notes. The remaining financing activities relate to the repurchase of stock from employees in connection with income tax withholding requirements associated with our employee stock-based compensation plans.
During 2020, net cash used in financing activities was $272 million as compared to $717 million in 2019. We used $200 million to repurchase LP common stock under the 2020 Share Repurchase Program. Additionally, we used $65 million to pay quarterly cash dividends. In the first quarter of 2020, we borrowed $350 million under our Amended Credit Facility as a precautionary measure due to the COVID-19 pandemic, and we repaid the outstanding balance in the second quarter of 2020.
CREDIT FACILITIES
The Amended Credit Facility provides for a revolving credit facility in the principal amount of up to $550 million, with a $60 million sub-limit for letters of credit. The Amended Credit Facility, and all loans thereunder, become due on June 8, 2027. As of December 31, 2021, we had no amounts outstanding under the Amended Credit Facility.
The Amended Credit Facility contains various restrictive covenants and customary events of default, the occurrence of which could result in the acceleration of our obligation to repay the indebtedness outstanding thereunder. The Amended Credit Facility also contains financial covenants that require us and our consolidated subsidiaries to have, as of the end of each quarter, a capitalization ratio ( i.e. , funded debt less unrestricted cash to total capitalization) of no more than 57.5%. As of December 31, 2021, we were in compliance with all financial covenants under the Amended Credit Facility.
In March 2020, LP entered into the Letter of Credit Facility, which provides for the funding of letters of credit up to an aggregate outstanding amount of $20 million, which may be secured by certain cash collateral of LP. The Letter of Credit Facility includes an unused commitment fee, due quarterly, ranging from 0.50% to 1.875% of the daily available amount to be drawn on each letter of credit issued under the Letter of Credit Facility. The Letter of Credit Facility is subject to similar affirmative, negative, and financial covenants as those set forth in the Amended Credit Facility, including the capitalization ratio covenant. As of December 31, 2021, we were in compliance with all covenants under the Letter of Credit Facility.
OTHER LIQUIDITY MATTERS
2029 Senior Notes
In March 2021, we issued the 2029 Senior Notes in the aggregate principal amount of $350 million, which mature
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on March 15, 2029. As of December 31, 2021, future interest payments associated with the 2029 Senior Notes totaled $95 million, with $13 million payable within 12 months of such date. For additional information regarding the 2029 Senior Notes, please see Note 11 of the Notes to the Consolidated Financial Statements included in Item 8 of this annual report on Form 10-K.
Contingency Reserves
Contingency reserves, which represent an estimate of future cash needs for various contingencies (principally, environmental reserves), totaled $25 million at December 31, 2021, of which $1 million is estimated to be payable within one year of such date. There is inherent uncertainty concerning the reliability and precision of such estimates, and as such, the amounts ultimately paid in resolving these contingencies could exceed the current reserves by a material amount.
Leases
We have lease arrangements for real estate, mobile equipment at our manufacturing facilities, rail cars to transport our products, and a fleet of vehicles. As of December 31, 2021, we had fixed lease payment obligations of $66 million, with $5 million payable within 12 months of such date.
Other Purchase Obligations
Our other purchase obligations primarily consist of obligations related to information technology infrastructure. As of December 31, 2021, we had other purchase obligations of $34 million, with $18 million payable within 12 months of such date.
Off-Balance Sheet Arrangements
As of December 31, 2021, we had standby letters of credit of $12 million outstanding related to collateral for environmental impact on owned properties, deposit for forestry license, and insurance collateral, including workers' compensation.
Potential Impairments
We continue to review several mills and investments for potential impairments. Management currently believes we have adequate support for the carrying value of each of these assets based upon the anticipated cash flows that result from our estimates of future demand, pricing, and production costs, assuming certain levels of planned capital expenditures. As of December 31, 2021, the fair values of LP's facilities were in excess of their carrying value, which supported the conclusion that no impairment is necessary for those facilities. However, if demand and pricing for our products fall to levels significantly below cycle average demand and pricing, or should we decide to invest capital in alternative projects, or should changes occur related to our wood supply for these locations, it is possible that future impairment charges will be required.
We also review from time to time possible dispositions of various assets in light of current and anticipated economic and industry conditions, our strategic plan, and other relevant factors. Because a determination to dispose of particular assets can require management to make assumptions regarding the transaction structure of the disposition and to estimate the net sales proceeds, which may be less than previous estimates of undiscounted future net cash flows, we may be required to record impairment charges in connection with decisions to dispose of assets.
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
For a discussion of prospective accounting pronouncements, see Note 2 of the Notes to the Consolidated Financial Statements included in Item 8 of this annual report on Form 10-K.
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